Martinez-Vazquez, Jorge, Journal of Public Budgeting, Accounting & Financial Management
The last decade has been witness to an unprecedented experiment in policy-making and institution building in Central and Eastern Europe and the former Soviet Union in those countries making the transition from planned socialism to market economies. Key to the success or lack thereof in this transition has been the ability of each country to introduce budgeting and fiscal management reforms. Adapting their budget institutions to a democratic and market-led environment has demanded that transitional countries re-invent themselves in a relatively short period of time. Public budgeting, as practiced in western market economies, did not exist under planned socialism. Instead, budgeting was no more than a passive accounting device in support of the hegemonic role played by the economic plan. As the papers in this symposium demonstrate, the road to reform has been a rocky one. Reforming the budgeting systems of these countries has been a time-intensive process and only in recent years have some of the fruits of the early reformers been seen. For most transition countries one is still witnessing the end of the beginning of their budget reform process.
The first four papers in the symposium address the reform of all aspects of the budget process in transition countries from different angles. Jorge Martinez-Vazquez and Jameson Boex investigate the main reasons that financial management reform has experienced such great difficulties in taking hold in Central and Eastern Europe and the former Soviet Union during the first decade of the economic transition and make inventory of the challenges that remain ahead in budget policy reform. Their explanation for the slow pace of reform in countries in transition is based on the institutional context of the transition and the incentives for and against reform faced by policy makers in these countries. In reality, the pace and scope of reforms have been very different across transitional countries, reflecting differences in political and economic conditions, and differences in history or even geographical neighbors. But, in general, all transitional countries have been subject to a similar learning curve shaped by the dynamics of the economic and political transition themselves, even though the exact timing of the reforms has differed. Three distinct periods can be identified in each country. During the first period, attention was given to other "important" economic reforms (privatization, tax reform, and so on) while budget officials were comfortable and protective of the old ways to do budgeting. In the second period, some budgeting reforms were introduced, but practically always in response to a macroeconomic crisis. These reforms were of an emergency nature and unable to produce sustainable fiscal discipline and accountable and efficient expenditure policies. The third period, spurred by renewed fiscal crises, has involved deeper and better thought-out substantial reforms. Most countries in transition are at present in this phase, laboring to integrate fiscal fringe activities in the ordinary budget, control the growth of arrears during budget execution, strengthen analytical capacity, and decentralize fiscal decision making.
The key role played by political culture in the ability to modernize the budget process and institutions is emphasized by George Guess. He hones in on the common features of the Balkan political culture as an explanation of the enduring fiscal centralization and lack of budgetary reform in four countries: Albania, Bulgaria, Macedonia and Serbia. The breakdown of the old order in the Balkan region was due to a large extent to the lack of ability to respond to the needs for reallocating fiscal resources and political power. Economic, political, and ethnic crises ensued in the transition from the old regime. Guess uses as a benchmark for budget reform the four standards for budget effectiveness of the Government Finance Ofcers' Association (GFOA): the budget should be a policy document, an operations guide, a financial plan, and a communications device for citizens' preferences and needs. …